AJAY JAIN, 9811167879, www.caajayjain.

com RTP (November 2009 – IPCC)

Hello, dear friends,
In continuation of our efforts for your success, Revisionary test paper has been prepared. This contains
complete paper alongwith solutions and the amendments made by the Finance Act 2008.
An Answered Prayer
 I asked for prosperity,
And God gave me brain,
And brawn* to work! *Physical strength

 I asked for love,

And God gave me,
Troubled people to help!

 I asked for favours,

And God gave me,
Opportunities to grab!

 I asked for strength,

And God gave me diffi-
-culties to make me strong!

 I asked for wisdom,

And God gave me,
Problems to solve!

 I asked for courage,

And God gave me,
dangers to overcome!

 I received nothing I wanted

I got everything I needed

Friends you must be feeling very tense. This tension is created by the institute to develop
more capabilities in you, so that you are prepared for the future challenges.

It is said that the maximum development of the world took place during two world wars.
Because it is only during challenges that our mind becomes creative and our capabilities
increase.
Therefore take this tension as a challenge and just think that God has given you this
opportunity to grow.
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
Before the examination day
1. Don’t waste any time on checking the paper of Cost & FM. Just think what next.

2. Keep in mind that the person who starts early always stays ahead. So don’t get relaxed. Don’t
think you have two days and you will work slowly. Don’t unduly stick to one topic.

3. Allocate time for each and every topic before starting the revision and don’t at all exceed those
limits. Following should be a tentative time plan for revision:-
Service Tax & VAT 2 hour 30 minutes
Assessment Procedure 1 hour
Status 30 minutes
Salary 2 hour
House Property 1 hour
Capital Gain 2 hour
PGBP 2 hour 30 minutes
Other Sources 30 minutes
Clubbing & C/f 30 minutes
Deductions 1 hour 30 minutes
Trust and Agricultural 30 minutes
Miscellaneous 30 minutes
Total 15 hours

4. Don’t try to recall the things; just try to read the topic. Just keep on reading, don’t think whether
you will be able to recall or not in the examination hall.
You will be definitely able to recall the topics provided you have gone through that topic before
examination day.
5. Don’t at all compromise on your sleep. If you are fresh then you will solve even the most difficult
questions and vice-versa.
And as per Dr. Bruta before sleeping take bath, it will give you good sleep.
So, please, take proper sleep and not only in this paper but in all the papers.

In the examination hall:-

1. Don’t rush to attempt the question paper. First go through the entire question paper and select
your best and shortest possible question.

2. Even in the most difficult papers, there are always few questions which are very easy. If you
once start doing easy questions, your confidence boosts up and you are able to do even the
difficult ones. Therefore, instead getting demoralized from difficult questions, try to search for
the easier ones.
3. Allocate time for each question and don’t exceed the limits.

4. Don’t leave numerical questions for the end, try to attempt them somewhere in the middle.

And finally friends, it is said that great battles are always won at the end. You still have lots of time. If
you work with regularity and discipline then your success is definite. Relax and work hard.
For successful people there is only one second of tension and all, all the remaining seconds of work
With Best Wishes
Ajay Jain
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
AMENDMENTS APPLICABLE FOR NOVEMBER 2009
Note – Page No. given in these amendments belong to 10th edition of Income Tax notes by CA. Ajay Jain.

1. Payment in cash section 40A(3) – (Pg. 56)

Exceptions to the above section under Rule 6DD (therefore in the following cases deduction shall
be allowed even if payment exceeds Rs. 20,000):-
Payments
(i) to the cultivator or producer of agricultural , forest, animal husbandry, fish or fish products
including other marine products such as shrimp, prawn, cuttlefish, squid, crab, lobster etc.
or other products.
The ‘producer’ of fish or fish products would include any headmen who sort the fish brought
by fisherman and then sells the fish.
This exception is not available for the purchase of fish products from a person who is only
trader/broker/manufacturer.

2. Charitable purpose section 2(15) – (Pg. 132)

Finance Act 2008 has amended the Section 2(15)of the Income Tax Act, 1961 which
states that the advancement of any other object of general public utility shall not be
charitable purpose if it involves carrying on of –
(a) any activity in the nature of trade, commerce or business; or
(b) any activity of rendering any service in relation to trade, commerce or business;
for a cess or fee or any other consideration, irrespective of the nature of use of application,
or retention of the income from such activity

3. Fee for professional or technical services section 194J – (Pg. 130)

Fees for professional or technical services Any a) other than No TDS shall 10%
(section 194J) resident Individual/ be deducted
which includes services in relation to sport if person HUF – always if total
provided by sports person, umpires and referees, b) for Individual/ amount
coaches and trainers, team physicians and HUF – only if during the
physiotherapists, event managers, a/c were p/y is upto
commentators, anchors and sports columnists. audited in the Rs. 20,000
preceding F/Y

4. Depreciation Section 32 – (Pg. 61)

(iii) Plant and Machinery (Plant includes ships, vehicles, books etc. 15%
but does not include building or furniture )
Books owned by assessee carrying on a profession and books 100%
owned by a library
car used in the business of running them on hire 30%
other cars 15%
Computer 60%
Commercial vehicles acquired on or after 1.1.2009 but before 50%
1.10.2009 and put to use before 1.10.2009
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)

5. Deduction for Life Insurance Premium, PF Contribution section 80C – (Pg. 56)
(a) Contribution by employee to statutory or recognized fund;
(b) Contribution by any person to public provident fund;
(c) Subscription to NSC VIII issue
(d) Subscription to any deposit scheme of National Housing Scheme notified by central
government

6. Payment of service tax Rule 6(1) – (Pg. 138)

Explanation:-
Gross amount charged also includes,
→ book adjustment and any amount credited, or debited, as the case may be,
→ to any account, whether called “Suspense Account” or by any other name,
→ in the books of account of a person liable to pay service tax,
→ where the transaction of taxable service is with any associated enterprise.

7. List of New Services introduced by Finance Act, 2009

(a) Cosmetic or Plastic Surgery Service
(b) Transport by Sea
(c) Legal consultancy Service

8. Section 66 of Finance Act, 1994 (pg. 142)

There shall be levied a tax @ 10% of the value of taxable service.
Special provisions for payment of Service Tax
1) Air travel agent has option to pay tax @ 0.618% of basic fare-domestic and @ 1.236%- international
bookings instead of 10.3% of value of taxable service.

9. Circular No. 107/1/2009 – ST – Levy of Service Tax on commercial coaching and training
centers.
a. Services provided by a non-profit organization (non – commercial coaching center) shall also
be leviable to tax.
b. Institutes that provide training to improve communication skills, personality development
etc. are also liable to pay service tax.
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
Time Allowed – 3 Hours Maximum Marks - 100
Answers to questions are to be given only in English except in cases of candidates who have opted for
Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answer in
Hindi will not be valued.

All questions are compulsory.

Part – A

1(a)Mr. Yogesh is employed with a transport firm. He is member of an unrecognized provident fund.
He has been drawing salary @ Rs. 10,000 p.m. since 1-1-2008. Dearness allowance, forming part of
pay for superannuation benefits, is paid @ 10% of his salary. He gets house rent allowance Rs. 1,500
per month. He pays rent of Rs. 2,500 pm. He contributes @ 11% of his salary to the fund and the
employer contributes @ 25%. The employer also reimburses his personal club bills amounting to Rs.
15,000. Besides, he is paid Rs. 1,400 p.m. as transport allowance. He retires 1-1-2009 after 28 years
and 9 months of service. He gets Rs. 85,000 as accumulated balance from the provident fund. It
consists of Rs. 20,000 as his contribution and Rs. 15,000 interest thereon. The employer's
contribution is Rs. 35,000 and interest thereon is Rs. 25,000. He also gets gratuity of Rs. 2,50,000.
After retirement, he gets pension @ Rs. 5,000 p.m. On 1-3-2009 he surrenders one half pension for a
consolidated amount of Rs. 1,50,000. He has made the following payments/investments during the
previous year 2008-09:
(i) Life Insurance Premium amounting Rs. 5,000 on the policy taken on the life of his married
son.
(ii) Public provident fund deposit Rs. 7,000.
(iii) Refund of Rs. 15,000 to the Life Insurance Corporation of lndia on account of loan taken
for the purchases of a flat, allotted in March, 1994.
(iv) Purchase of National Savings Certificates, VIII issue, amounting to Rs. 5,000
(v) Contribution of Rs. 8,000 under the Jeevan Dhara Scheme of Life Insurance Corporation of
India.
Compute his total income and tax liability for the assessment year 2009-10. (8 Marks)

(b)Rajan is a Sales-tax Officer at Jaipur. He owns two residential houses. The first is in Delhi and was
constructed on 31-12-1991. This has been let out on a rent of Rs. 5,000 p.m. to a company for its
office. The second house is in Jaipur which was constructed on 1-3-2008 and has been occupied by
him for his own residence since then. He took a loan of Rs. 95,000 on 1-8-2006 @ 9% per annum
interest for the purpose of construction of this house. The entire loan is still outstanding.
Other relevant particulars in respect of these houses are given below:
1st House 2nd House
Municipal valuation 30,000 20,000
Municipal tax 10% of Municipal Value 8% of Municipal value
Expenses on repairs 5,000 8,000
Fire insurance premium 500 --
Ground rent 225 230
Land revenue 1,500 850
Interest on loan -- 8,550
The ground rent of the Delhi house and the municipal tax and land revenue of the Jaipur house are
unpaid.
Rajan was transferred to Mumbai on 1-12-2008 where he resides in a house at a monthly rent of Rs.
6,000 and his house at Jaipur was let out on the same day on a rent of Rs. 4,000 per month.
Compute the "Income from house-property" in respect of Rajan for the assessment year 2009-10.
(7 Marks)
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
2(a)Compute the gross total income of Sohan on the basis of the following particulars:

Profit and Loss Account for the year ended 31-3-2009

Particulars Amount Particulars Amount
Interest 19,000 Gross profit b/d 3,35,000
Repairs and Renewals 25,000 Interest on debenture of an 25,000
institution (Gross)
Insurance 4,500 Rent from House property 55,000
Depreciation 5,600
Compensation 15,000
Law charges 8,000
Labour Welfare expenses 5,500
Subscriptions 7,500
Net profit 3,24,900
4,15,000 4,15,000

(a) (i) Interest includes Rs. 2,000 on loan taken for purchasing debentures of a company and Rs. 3,000
on loan taken for reconstruction of house property let out.
(ii) The expenses relating to house property let out are 45% of the repairs and renewal expenses.
(iii) Depreciation includes Rs. 1,500 on house property let out.
(iv) Compensation was paid to an employee whose dismissal was in business interest.
(v) Insurance includes 30% for fire insurance of the house property let out, 30% for workers
accident insurance and the balance for life insurance.
(vi) Law charges include Rs. 3,000 relating to a petition filed against breach of contract and the
balance regarding sales tax appeal.
(vii) Subscriptions include Rs. 3,500 given for election purpose to political parties.

(b) The amount not debited to profit and loss account are as follows-
(i) Expenses incurred on the occasion of Diwali Rs. 1,500
(ii) Theft of cash from iron safe Rs. 2,000
(iii) Expenses for new telephone connection in the business Rs. 2,500. (6 Marks)

(b)The details regarding opening WDV, additions during the year and deletions during the year of 5
block of assets are given below -

Block Category Rate WDV as on Assets put Assets put Sold

1.4.2008 to use for To use for during the
less than more than year
180 days 180 days
A Building 5% 600000 ---- 150000 ----
B Building 10% 1500000 450000 --- ---
C Furniture 10% 500000 ---- 95000 ---
D Motor Car 15% 400000 100000 --- 600000
E Machinery 15% 600000 ---- 250000 950000

In respect of Block D above, the entire assets are sold during the year and expenses on transfer are
Rs. 45,000. In respect of Block E above, there are still some assets remaining in that block and
expenses incurred for transfer is Rs. 25,000. Compute depreciation or capital gain / loss for the
purpose of income tax. (5 Marks)
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
(c)Mr. Mukesh desires to transfer his painting collections held as personal assets, during the financial
year 2008 - 09. He has the following alternatives to do the same. Advise the tax implications in
respect of the various alternatives:
(a) Sell the paintings to Mr. Amar, friend;
(b) Gift the painting to Mr. Vijay, father-in-law;
(c) Sell the painting to National Art Gallery, Mumbai;
(d) Gift the painting to Public Museum, New Delhi. (4 Marks)

3.(a)Mr. Bhushan submits the following information for the A.Y. 2009-10.
(Rs.)
Salary income 50,000
House property:
House 1 Income 40,000
House 2 loss 30,000
Textile Business (discontinued on 10.10.2008) (25,000)
Brought forward loss of textile business - A.Y 2007-08 85,000
Chemical Business (discontinued on 15.3.2008)
- b/f loss of previous year 2007-08 30,000
- unabsorbed depreciation of previous year 2007-08 20,000
- Bad debts earlier deducted recovered in July 2008 45,000
Leather Business 70,000
Interest on securities held as stock in trade 18,000
Determine the gross total income for the assessment year 2009-10 and also compute the amount of
loss that can be carried forward to the subsequent years. (5 Marks)

(b)Shree, a tax practitioner, derives Rs. 1,85,000 as taxable professional income. Income of Shree from
other sources is Rs. 9,000. He pays Mediclaim insurance premium of Rs. 5,000 for insuring the
health of his non - dependant parents; Rs. 5,000 for self and spouse and Rs. 8,000 for his brother. He
incurs Rs. 15,000 expenditure on medical treatment of his dependant mentally retarded (severe
disability) sister in approved hospital duly certified. He pays rent of Rs. 3,000 per month. Calculate
his total income for assessment year 2009-10 after claiming deductions under Chapter VI-A.
(3 Marks)

(c)Mahesh is a Chartered Accountant in practice. He is a resident and ordinarily resident in India. His
Profit and Loss Account for the year ended March 31, 2009 reads as follows:-

Expenditure (Rs.) Income (Rs.)

Salaries to paid staff 5,00,000 Fees Earned 18,00,000
Stipend to Articles 12000 Dividend on shares of Indian 15000
Clerks Companies
Incentive to articled clerks 5500 Income from unit trust of India 7000
Rent 25000 Profit on sale of shares 16000
Printing & Stationary 6000 Rent received from residential Flat 85000
let-out
Interest on loan 60000 Honorarium Received from Various 7000
institutions for valuation of answer
papers
Subscription and 18000
Periodicals
Postage, Telephone and Fax 180000
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
Repairs, Maintenance and 19000
Petrol for car
Depreciation
Car 7500
Office Equipment 15000
Typewriter 4500
Furniture 2500
Traveling Expenses 65000
Municipal Taxes paid in 2000
respect of house property
Net Profit 1008000
Total 1930000 Total 1930000
Other Information:
(a) Fees from consultancy services include Rs. 1,50,000 received in US Dollar from one company
in Singapore for rendering professional service there. (Assume that the entire convertible
foreign exchange was received with in permitted period).
(b) Traveling expenses include Rs. 25,000 incurred in connection with his visit to Singapore for
rendering service as indicated in (a) above.
(c) Incentives to articled clerks represents amount paid to two articled clerks for passing PE-II
Examination at first attempt.
(d) 1/4th of use of Car is attributable to personal purposes.
(e) 50% of loan was used for the purpose of construction of the house property and 50% of loan
was used for purchasing office equipment.
(f) The written down values of various assets as on 31.3.2008 are as follows:
Car - acquired on 1.4.2001 82,000
Office equipment - acquired on 15.12.2008 - Cost Rs. 1,60,000 Nil
Typewriter – acquired on 1.4.2003 20,000
Furniture - acquired on 1.4.2003 30,000
(h) Salaries include Rs. 30,000 paid to a computer specialist in cash for assisting Mahesh in one
professional assignment.
(i) Mahesh paid life membership subscription of Rs. 1,000 to Chartered Accountant's
Benevolent Fund (recognised under section 80G). The amount was debited to his drawings
account.
(j) Shares sold were held for 8 months before sale.
Compute the total income of Mahesh for A.Y. 2009 -10. (12 Marks)

Part B
4.(a) Briefly explain the three variants of VAT. Which of these methods is most widely used and why?
(3 Marks)
(b)Calculate the total VAT liability under the State VAT law for the month of October 2009 from the
following particulars:
Particulars Rs.
Inputs purchased within the state 1,70,000
Capital goods used in the manufacture of the taxable goods 50,000
Finished goods sold within the state 2,00,000
Applicable tax rates are as follows:-
VAT rate on capital goods 12.5%
Input tax rate within the state 12.5%
Output tax rate within the state 4%
(4 Marks)
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
(c) Explain briefly, how a VAT system discourages the tax evasion. (3 Marks)

(d) Compute the total value of purchases eligible for input tax credit from the following particulars:-
Particulars Rs.
Inputs purchased from a registered dealer who opts for composition
scheme under the provisions of the VAT Act 10,000
Inputs purchased for being used in the execution of a works contract 1,00,000
Raw material purchased from unregistered dealers 70,000
High seas purchases of inputs 1,00,000
Goods purchased for sale to other parts of India in the course of inter-
State trade or commerce 20,000
(5 Marks)
5.(a ) Who are not eligible for composition scheme? (5 Marks)

(b) Enumerate the tax rates under VAT. (5 Marks)

PART -C
6.(a)Suyogya Consultancy Services (SCS) is engaged in providing management consultancy services
during the financial year 2009-10. Examine, whether SCS shall be liable to pay the late fee for delay
in furnishing the return for the half-yearly period ending September 30, 2009 in the following
cases:-
(a) It files its return of service tax on October 26, 2009.
(b) It files its return on November 15, 2009. (4 Marks)

(b)Prahlaad has paid the amount of service tax for the quarter ending June 30, 2009 by cheque. The
date of presentation of cheque to the designated bank is July 5, 2009 and it is realised by the bank
on July 7, 2009? What is the date of payment of service tax in this case? Whether any interest and
penalty is attracted in this case? (3 Marks)

(c) JB Institute of Management is engaged in providing vocational training to the students. The
services provided are taxable under the category of “commercial training or coaching services”.
Explain the validity of the statement. (3 Marks)

7.(a)Explain the procedure for claiming the exemption of service tax paid on the services provided in
relation to the authorized operations in a Special Economic Zone, and received by a developer or
units of a Special Economic Zone. (3 Marks)

(b)MOTC is a tour operator engaged in arranging a tour from Delhi to Shimla wherein MOTC
provides the transportation, accommodation for stay, food, tourist guides, entry to monuments and
other similar services in relation to tour. The gross amount charged for the aforesaid services in the
financial year 2008-09 are Rs. 32,00,000.
Compute the amount of service tax payable by MOTC.
Note – The gross receipts in the financial year 2007-08 were Rs. 24,00,000. (5 Marks)

(c)Explain the special provision for payment of service tax in case of an air travel agent. (4 Marks)

(d)State briefly whether the services provided by a person having a place of business in the State of
Jammu and Kashmir providing services in any other place in India are taxable under the Finance
Act, 1994 as amended? (3 Marks)
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
ANSWERS

1.(a)Computation of Total Income and tax liability of Mr. Yogesh for the Assessment year 2009-10
Particulars Amount
(Rs.)
Income from Salary
Salary (Rs 10,000 x 9) 90,000
D.A. (10% of salary) 9,000
Club Bills reimbursed by employer 15,000
House Rent Allowance (Rs. 13,500 –Rs. 12,600) (Note 1) 900
Transport allowance (Rs. 1,400 x 9) i.e. (Rs.12,600 – exempt 70%) 3,780
Pension (Rs. 5,000 x 2 + Rs. 2,500 x 1) 12,500
Commuted pension (Rs.1,50,000 – Rs.1,00,000) (Note 2) 50,000
Gratuity (Rs.2,50,000 – Rs.1,54,000) (Note 3) 96,000
Employers contribution of U.R.P.F. 35,000
Interest on employers contribution to U.R.P.F 25,000
Gross salary 3,37,180
Less : Deduction Nil
Income from Salary 3,37,180
Income from other sources
Interest received on own contribution U.R.P.F 15,000
Gross total income 3,52,180
Less : Deduction under section 80C (Note 4) 40,000
Total income 3,12,180
Tax on Rs. 3,12,180
Income tax 17,436
Add : Education cess @ 2% 349
Add : Secondary and higher education cess @ 1% 174
Tax liability 17,959
Tax liability rounded off 17,960

Note:
1. HRA is exempt to the extent of the minimum of the following:
(i) HRA received (Rs. 1,500 X 9) 13,500
(ii) Rent paid -10% of salary of Rs. 99,000 i.e. (Rs.22,500 – Rs. 9,900) 12,600
(iii) 40% of salary 39,600
Therefore, Rs. 12,600 will be exempt.
2. Commuted pension will be exempt to the extent of commuted value of 1/3rd of the pension as
the assessee is also entitled to gratuity. The exemption amount will be (Rs. 1,50,000 x 2 x 1/3) =
Rs. 1,00,000.
3. Assuming that he is not covered under the Payment of Gratuity Act. Gratuity is exempt to the
extent of the minimum of the following :
(i) Half month's average salary for every completed year of service i.e. (28 x 1/2 x Rs.11,000)
1,54,000
(ii) Actual gratuity received 2,50,000
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
(iii) Specified amount 3,50,000
Therefore, Rs. 1,54,000 will be exempt.
4. The following payments qualify for deduction under section 80C:
(i) LlC premium 5,000
(ii) PPF 7,000
(iii) Jeevan Dhara Scheme 8,000
(iv) Repayment of housing loan 15,000
(v) Purchase of NSC VII issue 5,000 40,000

(b). Computation of Income from House property of Rajan for Assessment year 2009-10

Ist house (let out)

Gross Annual Value (GAV) (Rs. 5,000 X 12) 60,000
Less : Municipal taxes 3,000
Net Annual Value (NAV) 57,000
Less : Deductions under section 24
Standard deduction @ 30% of NAV 17,100 39,900

IInd House (Part of the year let and part of the year self occupied)
Gross Annual Value higher of the following two:
(a) Municipal value or Fair rent
whichever is more i.e. (Rs. 20,000 or Rs. 48,000) 48,000
(b) Actual rent received or receivable (Rs.4,000 x 4) 16,000 48,000
Less : Municipal taxes --
Net Annual Value (NAV) 48,000
Less : Deductions under section 24
(a) Standard deduction @ 30% of NAV 14,400
(b) Interest on loan (Rs. 8,550 + Rs. 1,140) 9,690 24,090 23,910
Income from House Property 63,810

Note:
1. The second house has been let out @ Rs. 4,000 p.m.; therefore in the absence of other
information, the expected rent or fair rent shall be (Rs. 4,000 x 12) = Rs. 48,000.
2. Interest for pre-construction period i.e. from 1-8-2006 to 31.3.2007 amounting to Rs. 5,700 is
allowable in five installments i.e. Rs. 1,140 for five years.

2.(a) Computation of Gross Total Income of Sohan for Assessment year 2009-10
Income from house property Rs.
Rent from house property 55,000
Less: Municipal taxes Nil
55,000
Less: (i) Standard deduction @ 30% 16,500
(ii) Interest 3, 000 19,500
Income from house property 35,500

Profits and Gains of Business or Profession

Net Profit as per P & L A/c 3,24,900
Add : Inadmissible expenses
Interest on loan for securities and house property (Rs. 2,000+ Rs. 3,000) 5,000
Repairs and renewals of property (Rs. 25,000 x 45%) 11,250
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
Depreciation on House Property 1,500
Fire insurance premium on house property (Rs. 4,500 x 30%) 1,350
Life insurance premium (Rs. 4,500 x 40%) 1,800
Subscription to political parties 3,500 24,400
3,49,300
Less: Income not taxable under this head
Interest on Debentures 25,000
Rent from house property 55,000 80,000
2,69,300
Less: Expenses allowable but not debited to P & L A/c
(i) Diwali expenses 1,500
(ii) New telephone expenses 2,500
(iii) Loss of cash due to theft 2,000 6,000
Profits and Gains of Business or Profession 2,63,300
Income from other sources
Interest on debentures (Rs. 25,000 – Rs. 2,000) 23,000

Computation of Gross Total Income

(i) Income from house property 35,500
(ii) Profits and gains of business or profession 2,63,300
(iii) Income from other sources 23,000
Gross Total Income 3,21,800

Note: Subscription of Rs. 3,500 paid to political party shall be allowed as deduction under section
80GGC.

(b). Computation of depreciation and capital gains/loss for the A.Y. 2009 - 10.

Particulars Building Furniture Motor Car Machinery

Block A Block B Block C Block D Block E
5% 10% 10% 15% 15%

Opening WDV 6,00,000 15,00,000 5,00,000 4,00,000 6,00,000

Add: Additions
made 1,50,000 4,50,000 95,000 1,00,000 2,50,000
7,50,000 19,50,000 5,95,000 5,00,000 8,50,000
Less: Sales net
Of expenses ---- ----- ---- 5,55,000 9,25,000
WDV 7,50,000 19,50,000 5,95,000 Nil Nil
Depreciation 37,500 1,72,500 59,500 Nil Nil

1. Block B 10% on Rs.15,00,000 + 1/ 2 of 10% on Rs.4,50,000 = Rs. 1,72,500.

2. Total depreciation Rs.2,69,500 (Block A+B+C).
3. In respect of block D & E, depreciation can not be claimed since provisions of section 50
become applicable. Consequently, the short term capital gain or losses in respect of these 2
blocks are computed here under:
Particulars Block D Block E
Full value of consideration (I) 6,00,000 9,50,000
Less: i) Expenses for transfer 45,000 25,000
ii) W.D.V. of the block 4,00,000 6,00,000
iii) Assets acquired during the year 1,00,000 2,50,000
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
Total (II) 5,45,000 8,75,000
Short term capital gain(loss) (I) - (II) 55,000 75,000

(c) Painting, though held for personal purpose and are movable in nature shall be considered to be
capital assets under section 2(14). Accordingly, any transfer thereof is subject to tax under the head
"Capital gains." Therefore, in the given case, tax implications for various alternatives are as follows:
Situation Tax Implications
(a) Sell paintings to Mr. Amar friend Capital gains on sale of such paintings are
chargeable to tax under the head capital
gains.
(b) Gift the painting to Mr. Vijay, father-in-law. (i) As per the provisions on Section 47(iii),
gift of capital asset under a Will is not a
transfer and therefore, not chargeable to
capital gains tax.

(ii) In the case of recipient, Section 56 is not

(c) Sell the painting to National Art Gallery, Mumbai
(d) Gift the painting to Public Museum, New Delhi
applicable since the gift received is of
non-monetary in nature.
The gain arising on sale of paintings is not
chargeable to tax since, sale of such assets
are not to be considered as transfer by
virtue of section 47(ix).
Gift is not a transfer as per section 47(iii).
Therefore, the transaction is not subject to
any tax implications in the hands of the
seller.

3.(a) Computation of Gross Total Income for Assessment year 2009-10

Amount
(Rs.)
I. Income from Salary
Salary 50,000
II Income from House property
House 1 Income 40,000
House 2 loss (30,000) 10,000
III Profits and Gains of Business or Profession
(i) Textile business loss (25,000)
(ii) Chemical business -
Bad debts recovered taxable under section 41(4) 45,000
Less: Set off of brought forward loss of P.Y. 2007-08
under section 72 (30,000) 15,000
(10,000)
(iii) Leather Business Income 70,000
(iv) Interest on securities held as stock-in-trade 18,000 52,000
42,000
Less: B/f loss of textile business Rs. 85,000 restricted to 42,000 Nil

Total 60,000
Less: Unabsorbed depreciation of Rs.20,000 restricted to Rs.10,000 (Note 2) 10,000
Gross Total Income 50,000
Note:
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
1. The unabsorbed loss of Rs.43,000 (Rs. 85,000- Rs. 42,000) of Textile business can be carried
forward to A.Y. 2010-11 for set-off under section 72, even though the business is discontinued.
2. The unabsorbed depreciation of Rs.20,000 is eligible for set off against any income other than
salary income. Accordingly, a sum of Rs.10,000 is adjusted against income from house property.
The balance Rs.10,000 is eligible for carry forward and set off to A.Y.2010-11.

(b). Computation of Total Income of Shree for Assessment Year 2009-10

Rs.
Professional income 1,85,000
Income from other sources 9,000
Gross total income 1,94,000
Less: Deductions under Chapter VI-A
1. Mediclaim Insurance - 80D - (Rs. 5,000 + Rs. 5,000) 10,000
2. Expenditure for dependant mentally retarded sister- 80DD 75,000
3. Rent paid - 80GG - least of the following is eligible for
deduction
(i) Excess of rent paid over 10% of total income
(Rs. 36,000 – Rs. 10,900) = Rs. 25,100
(ii) 25% of total income = Rs. 27,250
(iii) Ceiling limit Rs.2,000 p.m. = Rs. 24,000 24,000 1,09,000
Total income 85,000
Note:
1. Mediclaim insurance for insuring health of X's brother does not qualify for deduction under
section 80D.
2. Mediclaim insurance for non - dependant parents shall qualify for deduction under section 80D.
3. Deduction under section 80DD is a flat amount of Rs.75,000, irrespective of the actual
expenditure incurred (for persons with severe disability).
4. Total income for the purpose of section 80GG
Gross total income 1,94,000
Less: Deduction under section 80D & 80DD 85,000
Total Income 1,09,000

(c) Computation of Total Income of Mr. Mahesh for the A.Y. 2009-10
Particulars Amount
(Rs.)
(i) Income from House Property (Note 1) 28,100
(ii) Profits and Gains of Business or Profession (Note 2) 9,47,025
(iii) Capital Gains
Short term Capital Gain – Since the shares were held for less than
12 months before the date of transfer 16,000
(iv) Income from Other Sources (Note 3) 7,000

Gross Total Income 9,98,125

Less : Deduction under chapter VI-A
Under section 80G
Donation to Chartered Accountant’s Benevolent fund (Rs. 1,000 X 50%) 500
Total Income 9,97,625

Notes -
1. Computation of Income from House Property:
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
Amount
(Rs.)
Gross annual value 85,000
Less : Municipal tax paid 2,000
Net annual value 83,000
Less : Deduction under section 24
(a) 30% of net annual value 24,900
(b) Interest on loan (50% of Rs.60,000) 30,000 54,900
Income from House Property 28,100

2. Profit and Gains of Business or Profession

Amount
(Rs.)
Net Profit as per Profit and Loss Account 10,08,000
Add :
(i) Depreciation 29,500
(ii) Interest on loan borrowed for the construction of
house property 30,000
(iii) Repairs , Maintenance and Petrol for Car (1/4th
attributable to personal purposes) 4,750
(iv) Cash payment to computer specialist for a sum
exceeding Rs. 20,000 disallowable under section
40A(3) 30,000
(v) Municipal Tax paid to be considered under income
from house property 2,000 96,250
11,04,250
Less :
(i) Depreciation under section 32 27,225
(ii) Items to be considered under income from other
sources:
(a) Dividend on Shares of India Companies 15,000
(b) Income from Unit Trust of India 7,000
(iii) Rental income considered under the head income
from House property 85,000
(iv) Sale of Shares considered under the head Capital
Gains 16,000
(v) Honorarium received from various institution 7,000 1,57,225
Profits and Gains of Business or Profession 9,47,025

3. Depreciation under Income tax Rules

Amount
(Rs.)
(I) Block A - Motor Car
15% on Rs. 82,000 12,300
Less : 1/4th attributable to personal use 3,075 9,225
(II) Block B – Plant and Machinery
(i) Typewriter – 15% on Rs.20,000 3,000
(ii) Office equipment 15% on Rs.1,60,000
(amount of depreciation restricted to 50%
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
since the asset has been put to use
for less than 180 days) 12,000 15,000
(III) Block C – Furniture
10% on Rs.30,000 3,000
Total Depreciation 27,225

4. Incentive to articled clerks for passing PE- II Examination at first attempt is allowable as
expenses under section 37(1) as such payment would boost up the morale of the students and
increase their loyalty to the employers. Thus, it is an expenditure wholly and exclusively for
the purpose of profession.

5. Income from other sources

Rs.
(i) Dividend on shares of Indian companies 15,000
Less : Exempt under section 10(34) 15,000 Nil
(ii) Income from Unit Trust of India 7,000
Less : Exempt under section 10(35) 7,000 Nil
(iii) Honorarium received from various institutions 7,000
Income from Other Sources 7,000
6. Since he is an ordinary resident, income earned in Singapore is also taxable and the traveling
expenses met for that purpose is also deductible.

4.(a)Different variants of VAT

1. Gross product variant: Tax is levied on all sales and deduction for tax paid on inputs excluding
capital inputs is allowed.
2. Income variant: Tax is levied on all sales with set-off for tax paid on inputs and only
depreciation on capital goods.
3. Consumption variant: Tax is levied on all sales with deduction for tax paid on all business
inputs (including capital goods).

Among the three variants of VAT, the consumption variant is most widely used.
Reasons for preference of consumption variant:
(1) It does not affect decisions regarding investment because the tax on capital goods is also set-
off against the VAT liability. Hence, the system is tax neutral in respect of techniques of
production (labour or capital-intensive).
(2) The consumption variant is convenient from the point of administrative expediency as it
simplifies tax administration by obviating the need to distinguish between purchases of
intermediate and capital goods on the one hand and consumption goods on the other hand.

(b) Computation of the VAT liability for the month of October 2009:-
Rs
Inputs purchased within the state 1,70,000
Capital goods used in the manufacture of the taxable goods 50,000
Input tax credit (including capital goods) (Rs. 21,250 + Rs. 6,250) 27,500
Output sold in the month (within the State) 2,00,000
Output tax @ 4% 8,000
VAT liability = Output tax – Input tax credit (Rs.8,000 – Rs.27,500) Nil
Excess credit carried forward to subsequent period 19,500

(c) Under VAT, credit of duty paid is allowed against the liability on the final product manufactured or
sold. Therefore, unless proper records are kept in respect of various inputs, it is not possible to
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
claim credit. Hence, suppression of purchases or production will be difficult because it will lead to
loss of revenue. A perfect system of VAT will be a perfect chain where tax evasion is difficult.

(d) Computation of purchases eligible for input tax credit:-

Particulars Rupees
Inputs purchased for being used in the execution of a works contract 1,00,000
Goods purchased for sale to other parts of India in the course of inter-State
trade or commerce 20,000
Purchases eligible for input tax credit 1,20,000

Note: For the purpose of computation of value of purchases eligible for input tax credit, following
have not been included:-
(1) Inputs purchased from a registered dealer who opts for composition scheme under the
provisions of the Act of worth Rs. 10,000.
(2) Raw material purchased from unregistered dealers of worth Rs. 70,000.
(3) The inputs imported from outside the territory of India commonly known as high seas
purchases of worth Rs.1,00,000.

5(a) Following are not eligible for composition scheme:-

(i) a manufacturer or a dealer who sells goods in the course of inter-state trade or commerce; or
(ii) a dealer who sells goods in the course of import into or export out of the territory of India.
(iii) a dealer transferring goods outside the State otherwise than by way of sale or for
execution of works contract.

(b). Tax rates under VAT:

1. Exempted category:- There are about 50 commodities which are legally barred from taxation
and items which have social implications.
2. 4% VAT category:- Under 4% VAT rate category, there are largest number of goods
comprising of items of basic necessities, all agricultural and industrial inputs, capital goods
and declared goods.
3. 12.5% category:-The remaining commodities, common for all the States, fall under the general
VAT rate of 12.5%.
4. 1% Category:-The special rate of 1% is meant for precious stones, bullion, gold and silver
ornaments etc.
5. Non-VAT goods:- Petrol, diesel, ATF, other motor spirit, liquor and lottery tickets are kept
outside VAT. The States may or may not bring these commodities under VAT laws.

6. (a)(a) For the half-yearly period ending September 30, 2009, the due date for filing the return is
October 25, 2009. However, since October 25 is Sunday, the assessee can file the return on the
next immediately succeeding working day i.e. October 26, 2009. Hence, if Suyogya Consultancy
Services files its return of service tax on October 26, 2009, it shall not be liable to pay the late fee
for delay in furnishing the return.
(b) For the half-yearly period ending September, 2009, the assessee can file the return up to
October 26, 2009 (as discussed above). However, Suyogya Consultancy Services files its return
of service tax on November 15, 2009. Hence, it shall be liable to pay the late fee of Rs. 1,000 for
delay in furnishing the return.

(b) Rule 6(1) of the Service Tax Rules, 1994, inter alia, provides that service tax on the value of taxable
services received by an individual during any quarter is payable by the 5th day of the month
immediately following the said quarter. Therefore, in the given case, the due date for payment of
service tax is July 5, 2009.
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
Further, in case the amount of service tax is paid by cheque, the date of presentation of cheque to
the designated bank, subject to realization is the date of payment. Thus, in this case, the date of
payment will be 5th July, 2009 as the cheque has been realized on 7th July, 2009.
Since, the service tax has been paid on the due date, no interest and penalty is chargeable as there is
no delay in payment of service tax.

(c).The statement is invalid. Notification No. 24/2004 dated 10.09.2004 provides that the taxable services
provided to any person in relation to commercial training or coaching, by a vocational training
institute are wholly exempt from the service tax. Therefore, in the given case, services provided by
JB Institute of Management are not taxable under the category of “commercial training or coaching
services”.

7.(a)Procedure for claiming the exemption of service tax paid on the services provided in relation to
the authorized operations in a Special Economic Zone (SEZ), and received by a developer or units
of a SEZ:-
(a) the developer or units of SEZ shall be eligible to claim exemption for the services provided to
the developer or units of SEZ and used in relation to the authorised operations in the SEZ,
and not the person liable to pay service tax.
However, where the developer or units of SEZ and the person liable to pay service tax under
sub-section (2) of section 68 for the said services are the same person, then in such cases,
exemption for the specified services shall be claimed by such person;
(b) the exemption shall be claimed by filing a claim for refund of service tax paid to the
jurisdictional Assistant Commissioner/Deputy Commissioner of Central Excise, as the case
may be, within six months from the date of actual payment of service tax by such developer
or unit to service provider or, such extended period as may be permitted;
(c) the unregistered developer or units of SEZ, shall, prior to filing a claim for refund of service
tax under this notification, file a declaration in the prescribed form with the respective
jurisdictional Assistant Commissioner/ Deputy Commissioner of Central Excise, as the case
may be;
(d) the refund claim shall be accompanied by the following documents, namely:-
(i) a copy of the list of specified services required in relation to the authorised operations in
the SEZ, as approved by the Approval Committee;
(ii) documents for having paid service tax;
(iii) a declaration by the SEZ developer or unit, claiming such exemption, to the effect that
such service is received by him in relation to authorised operation in SEZ;
(e) the jurisdictional Assistant Commissioner/ Deputy Commissioner of Central Excise, as the
case may be, shall, after due verification, allot a service tax code (STC) number to the
developer or units of SEZ within seven days from the date of receipt of the said form;
(f) the Assistant Commissioner/ Deputy Commissioner of Central Excise, as the case may be,
shall, after satisfying himself that the said services have been actually used in relation to the
authorised operations in the SEZ, refund the service tax paid on the specified services used in
relation to the authorised operations in the SEZ;
(g) where any refund of service tax paid on specified services is erroneously refunded for any
reasons whatsoever, such service tax refunded shall be recoverable under the provisions of
the Finance Act, 1994 and the rules made there under, as if it is a recovery of service tax
erroneously refunded.

(b) Notification No. 1/2006 ST dated 01.03.2006 provides that in case of services provided in relation to
a tour by a tour operator where the tour operator provides a package tour, an abatement of 75% of
the gross amount charged is granted if the bill issued for this purpose indicates that it is inclusive of
charges for such a tour.
AJAY JAIN, 9811167879, www.caajayjain.com RTP (November 2009 – IPCC)
The said notification defines package tour as a tour wherein transportation, accommodation for
stay, food, tourist guide, entry to monuments and other similar services in relation to tour are
provided by the tour operator as part of the package tour to the person undertaking the tour.
Therefore, the tour arranged by MOTC is a packaged tour.
Accordingly, in the given case, service tax is payable on 25% of the gross amount charged for the
above services.
Therefore, the amount of service tax payable is as follows:-

Particulars Rs.
Gross receipts 32,00,000
Less : Exemption under Notification No. 1/2006 ST dated 01.03.2006 (Rs. 32,00,000 × 75%) 24,00,000
Value of taxable service 8,00,000
Service tax payable (8,00,000 × 10.30%) 82,400

Notes:
1. The exemption under Notification No. 1/2006 ST dated 01.03.2006 is available only if:
(i) the CENVAT credit of duty paid on inputs or capital goods or the CENVAT credit of
service tax on input services, used for providing such taxable service, has not been
taken under the provisions of Cenvat Credit Rules, 2004; and
(ii) the service provider has not availed the benefit under the Notification No. 12/2003 ST,
dated 20.06.2003.
2. The exemption available for small service provider under Notification No. 6/2005-ST dated
01.03.2005 as amended shall not be available in financial year 2008-09 because the gross
receipts in preceeding financial year 2007-08 exceeds Rs. 10 lakh.

(c) Special provision for payment of service tax in case of air travel agent:
Rule 6(7) of the Service Tax Rules, 1994 provides that the person liable for paying the service tax in
relation to the services provided by an air travel agent, shall have the option:
(i) to pay an amount calculated at the rate of 0.6% of the basic fare in the case of domestic
bookings, and
(ii) at the rate of 1.2% of the basic fare in the case of international bookings, of passage for travel
by air, during any calendar month or quarter, as the case may be, towards the discharge of his
service tax liability instead of paying service tax at the rate of specified service tax. The option
once exercised, shall apply uniformly in respect of all the bookings of passage for travel by air
made by him and shall not be changed during a financial year under any circumstances.
For the purposes of this sub-rule, the expression "basic fare" means that part of the air fare on
which commission is normally paid to the air travel agent by the airline.

(d) As per section 64(1) of the Finance Act, 1994 as amended, service tax provisions do not extend to
the State of Jammu and Kashmir. Therefore, service tax will not be payable if service is provided in
Jammu & Kashmir. However, since service tax is a destination based consumption tax, if a person
from Jammu & Kashmir provides the taxable service outside Jammu & Kashmir in any other part of
India, the service will be liable to service tax, as the location where service is provided is relevant.
Hence, the services provided by a person having a place of business in the State of Jammu and
Kashmir providing services in any other place in India are taxable under the Finance Act, 1994 as
amended.